In the 1990s, Mavrodi Mondial Moneybox otherwise known as ÐœÐœÐœ, a Russian company founded by Sergey Mavrodi, Vyacheslav Mavrodi, and Olga Melnikova perpetrated one of the world’s largest Ponzi schemes of all time. According to Wikipedia between five and ten million people lost their savings to the scheme.
A Ponzi scheme also according to Wikipedia, is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors.
Two years ago, Mrs Dolapo Adeoya, a Micro finance bank staff participated in the scheme. According to her she heard about MMM from her father in Lagos after the old man had unbelievably made huge profits from the little amount he invested in it.
“He told me he made four times what he invested and advised that I do same since that was what many people were doing in Lagos. I put in N10,000 and was paid N30,000 in four or six weeks, I can’t remember exactly. I did it again with another N10,000 and made the same amount again. But I was skeptical because I remembered what happened to those who participated in Moneywise scheme in the early 2000.
“I was thinking of pulling out when my sister called me and said she was investing in MMM for the third time and advised that I should do same. I advised her not to invest all her profits, but she was adamant. She started with N8,000 and earned more than N20,000.
“She put her everything in it. On her second recoupment, she made almost N100,000. The guaranteed N600,000 was the attraction, but there is nothing really guaranteed in life. The whole house began to pray because deep inside, many of us had begun to query how this scheme actually worked and how it was sustained. Nobody knew,” she said.
Less than two weeks into the six weeks gestation period, MMM went under. Except for Mrs Adeoya, others close to her like her father and sister lost a lot of money to the scheme.
“I will never participate in such schemes again,” she told Sunday Tribune, saying that though a new ponzi scheme is catching fire, her sister and dad are not interested.
“We have all learnt our lessons in diverse ways. For me, Ponzis are scams. Schemes done on phones, to me, are fraudulent,” she said revealing that many Nigerians are now wiser and would rather approach a micro finance bank for a loan to do productive businesses.
What is wrong with Nigerians?
Unfortunately despite the disappointments that trailed MMM, many Nigerians are still rushing into another ponzi scheme. Sunday Tribune spoke with a cross section of sociologists and psychologists on why this is so.
Though experts, some of them are surprised that Nigerians could still go back to attempt something which brought them so much sorrow in the past.
Dr Andrew Adebayo, Chief Medical Director, Yaba Federal Neuro-psychiatric Hospital, Lagos giving a psychological dimension to the problem said: “It is not just a Nigerian problem; it is an endemic human problem.
“From the psychological point of view, it is a clear manifestation of greed, the human tendency to want to have and have – often without deploying the approximate amount of labour.
“When a human being sees a platform where they can invest their money in and within a short period of time get multiple folds in return an aspect of the human mind is provoked into almost ecstasy, that is, the greed region of the mind. Once the region of avarice has been pricked, one is almost always willing to play along with few questions asked.
“And the originators of this ponzi schemes understands this psychological programming in human beings. That is why most of the local ponzi schemes that people are engaged in are not always non-rewarding.
“The initiators play on people’s psychology and intelligence. The first few people enrolled in the scheme always get paid and get their monies doubled or tripled as the case maybe. And these ones will then become their advertisers.
“This is the same thing that happens with football betting. Sometimes, some people win. Few people get something out of it and this will stimulate them to invest more into it until they go into penury.
“Usually those who make huge money out these schemes are hardly up to 10 per cent of the bulk. The vast majority lose out. It is the same thing with the Ponzi scheme.
“The early bird enrollees get well paid and they are the ones who go about spreading the gospel to everyone that it is rewarding. They recruit more people to the scheme who then invest their money and never get paid.
“But an individual who is not greedy will ask questions. And when they don’t get any satisfactory answer they steer clear.”
Dr Adebayo however advised everyone to work on their greed, because the brains behind the ponzi schemes often launder their images by associating their brands with established religious institutions in order to poach more gullible members and they continue to thrive.
Another psychologist, Professor Oyesoji Aremu of the Department of Psychology, University of Ibadan, explaining the problem while speaking with Sunday Tribune said: “human nature is a bundle of characteristics, including our ways of thinking, feeling, and acting, which humans naturally have.
“Sometimes, it is the nature of man not to learn from the past, given the desire of man to always crave for pleasures. It is therefore in man to naturally want to seek comfort, which Ponzi schemes represent in this context.
“While one may be tempted to link the desire of some Nigerians to crave for the reintroduced Ponzi scheme, it may, however, not be entirely so. Rather, it could be due to the pleasure seeking part of man, which most often not many people have control over. In some cases, this pathological desire of man, which is rooted in pleasure seeking, could be counter-productive consequences, which could be grievous and emotionally harrowing.
“One would naturally expect Nigerians not to welcome the new Ponzi scheme that was recently launched, but the human nature in them, which is self-recidivistic; (that is, the desire to reoffend self), would not allow them. In so doing, they redo a behaviour. Another plausible reason is the thought that those that would first embrace the new Ponzi scheme stand the chance of making it big before it crashes. It is a terrible thought.”
According to Professor Aremu, poverty also plays a huge role in the ignorance that pervades the society which engenders a craze for easy money. He added that poverty could drain people mentally, therefore people could become so desperate as to want to make money by all means.
“Studies have shown that attitude of people towards poverty is the same, as everyone detests it. Often, poverty shifts peoples’ focus and could also spur people to engage in any behaviour to overcome the socially debilitating state. This, therefore, accounts for the get-rich-quick syndrome, especially among the struggling class. However, poverty is simply a mindset which can be neutralised by deliberate efforts and appropriate value systems,” he said.
A former banker, Chidi Ogbolu, sharing his views on ponzi schemes and how they affect financial institutions, said negative impacts on financial institutions hardly happen “because some guys get conned by fraudsters. That is not enough to sink a microfinance bank, let alone a commercial bank.”
Ogbolu also listed what he called “the desire for quick, out-of-the-norm, long-throat returns, which ultimately translates to greed,” as the major attraction for those who are desperate to go back to a ponzi scheme despite the disappointment of the past.
While adding to the discussion, Mrs Adeoya who spoke with Sunday Tribune earlier said: “Ponzis have nothing in common with commercial banks. However, because the cash transactions have to be moved/transferred via the financial systems, such funds must necessarily move through the banking system. But many financial organisation staff still don’t trust MMM or Boom, or any other faceless financial schemes.”
How Ponzi scheme works
Ponzi schemes basically do the following in its operations. They convince a few investors to place money into the investment; after the specified time, return the investment money to the investors plus the specified interest rate or return; use success of earlier investors to convince more investors to place their money into the system. Typically, the vast majority of the earlier investors will return; repeat steps 1 through 3 a number of times. During step 2 at one of the cycles, break the pattern. Instead of returning the investment money and paying the promised return, escape with the money and start a new life.
Mr Ogbolu, speaking further on ponzi operations said they are fraudulent transactions where some persons promote a non-existent company, and pay off earlier investors from funds received from later investors.
“Sometimes, the so-called company does exist, however, neither the volume of business they do, nor the industry/sector they operate in, can justify the returns being paid to ‘investors’, he told Sunday Tribune.
He, however, absolved the Central Bank of Nigeria of any blame in the financial transaction since the decisions to participate in such faceless schemes are taken by private individuals about their personal funds/investments.
“The CBN and other government agencies have put out several warnings, but no one is going to tell you how to use/invest your money. So, if you get burned, you bear the consequences alone,” he said.
While Boom, the new scheme seems to be ‘booming’ as more Nigerians are getting drawn to the scheme, relying on testimonies of those who are benefitting for now, some Nigerians are innocently participating in another scheme, Nou Rich, which is also suspected to be a ponzi scheme. Similarly this scheme works by referring a client before one gets paid.
“When your upline refers, you get paid. When your down line refers, you get paid. When your team people refer, you get paid,” revealed a Lagos-based banker who did not want to be identified his name in print.
“But Nou Rich is a bit different from Boom because it has, ingeniously, added a product to its services and when you make repeat order for the service, you get paid. When your team makes a repeat order, you get paid. When you enter from Silver level and above, you get paid on leadership, you get paid on rankings and you get paid on maintenance (optional). It is a system that pays weekly.
“For those in the platinum category (N350,000 to N520,000), you earn 12 per cent weekly, while those in the gold (N180,000 to N300,000) earn 10 per cent and silver (100,000 – 150,000) earn 8 per cent. This scheme is very popular among traders. Maybe with time, it will fascinate none traders,” the Lagos-based banker said.
Since many gullible Nigerians are not bothered by financial losses through ponzi schemes, going ahead to invest in new ones is like walking into a ditch with one’s eyes open. However, only time could tell if the new schemes would be rewarding or simply go the way of their predecessors.